Suppose that an economy begins in equilibrium at E, as depicted in the graphto the right.140-Assume that the economy follows the Classical Model assumptions.LRAS130-a. Using the line drawing tool, draw a new aggregate demand (AD) curvereflecting an increase in the amount of money in circulation. Properly label thisline.120-110-Carefully follow the instructions above, and only draw the required objects.E1100-90-b. During the rapid adjustment period (that results from the change in the ADcurve), the economy will immediately tend toward a price level that80-AD70-decreases60-10121416increasesReal GDP ($ trillions)remains constantPrice level

Since in this figure LRAS is vertically upward. Which means any change in AD will not bring any…

Suppose that an economy begins in equilibrium at E, as depicted in the graph to the right. 140 Assume that the economy follows the Classical Model assumptions. LRAS 130- a. Using the line drawing tool, draw a new aggregate demand (AD) curve reflecting an increase in the amount of money in circulation. Properly label this line. 120어 110 Carefully follow the instructions above, and only draw the required objects. E1 100 90- b. During the rapld adjustment period (that results from the change in the AD curve), the economy will immediately tend toward a price level that 30- AD 70어 decreases 10 12 Real GDP ($ trillions) 14 16 increases remains constant Price lerel

Suppose that an economy begins in equilibrium at E, as depicted in the graph to the right. 140 Assume that the economy follows the Classical Model assumptions. LRAS 130- a. Using the line drawing tool, draw a new aggregate demand (AD) curve reflecting an increase in the amount of money in circulation. Properly label this line. 120어 110 Carefully follow the instructions above, and only draw the required objects. E1 100 90- b. During the rapld adjustment period (that results from the change in the AD curve), the economy will immediately tend toward a price level that 30- AD 70어 decreases 10 12 Real GDP ($ trillions) 14 16 increases remains constant Price lerel

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Price Level 8 7 6 X 50 4 3 2 1 0 2 4 AS AD 6 8 10 12 14 16 18 20 Real GDP (in billions of dollars per year) billion. QE Instructions: Enter your responses as a whole number. a. Identify the macro equilibrium. Instructions: Use the tool provided 'QE' to identify the current macro equilibrium on the graph. The current macro equilibrium is when real GDP is $ Suppose that full-employment GDP is $13 billion. b. The real GDP gap is $ c. Aggregate demand must shift (left or right) by $ billion. billion to achieve the full-employment equilibrium.
Consider the components of AD for the following economy: (1) consumption = $600 billion; (2) investment = $60 billion; (3) government purchases = $120 billion; and (4) net export = $25 billion. If the full-employment level of GDP for this economy is $705 billion, then what combination of actions would be most consistent with the goal of achieving price level stability? Increase government spending and decrease taxes O Decrease government spending and increase taxes Increase government spending and taxes O Decrease government spending and taxes
Draw and properly label an AD-AS model to show Keynesian, intermediate, and neoclassical zones. Then, briefly explain the levels of unemployment, inflation and real GDP in each zone, and also confirm whether all three goals of a macro economy are being achieved in each zone. 2. Draw and properly label the AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how Keynesians suggest that recessionary and inflationary gaps be closed. 3. Draw and properly label AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how neoclassicals suggest that recessionary and inflationary gaps be closed.
Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point W. The price level is Po. Now, suppose there is an exogenous fall in the price level to P2. Which of the following statements describes the likely macroeconomic effects? O A. The AE curve shifts to AE₁, a new equilibrium is established at point V, and the AD curve shifts from AD to AD¹, and equilibrium moves from point B to point D. OB. The AE curve shifts to AE2, a new equilibrium is established at point U, and the AD curve shifts from AD to AD¹, and equilibrium from point B to point D. Ⓒ C. The AE curve shifts to AE2, a new equilibrium is established at point U, and the economy moves from point B to point C along AD. O D. The AE curve shifts to AE₁, new equilibrium is established at point V, and the economy moves from point B to point C along AD⁰. Desired Aggregate Expenditure Price Level 759² Y₁ W Yo Y₂ Real GDP AE=Y AE₂ Real GDP AEo AE₁ Q ✔ Q
Figure 16-1 Price level A) E to A. B) C to D. C) A to E. D) C to B. E) D to C. A Save LRAS D B E Real GDP Refer to Figure 16-1. Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued. Using the static AD-AS model in the figure above, this would be depicted as a movement from U SRAS AD 3 AD₂ AD₁
8a. Assume that an economy is at equilibrium at its potential GDP at $10 trillion and aprice level of 100. What would be the short-run impact of a significant fall in consumer confidence about the future? Provide an AD/AS model to support your answer. b. What policy would you recommend to the chairperson of the Federal Reserve? Be specific. Show the effect of this policy on your graph part a. c. What are the major goals of the Fed's monetary policy?
The macroeconomy is depicted by the graph to the right 160- a. The current equilibrium price level and output level respectively are: 80 and $ 10 trillion. (Enter your responses as a whole numbers.) LRAS 140- b. The full employment level of GDP is SRAS O A. $10 trillion since the LRAS is defined at this point. 120- O B. unknown since no information was provided about the labor market. 100- O C. $10 trillion now but thereafter it depends on what the aggregate demand curve does. O D. $10 trillion now but it depends on the SRAS curve. 80- 60- AD 40- 10 12 14 16 18 20 Real GDP ($ trillions) Price level
Price level 110 105 100 96 1 AS Ful employment. AD₂ AD₁ 50 51 Real GDP (trillions of dollars per year) Suppose the economy in Exhibit 11-2 is in equilibrium at point E, and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, the federal government can move the economy to full employment at point E₂ by: A increasing government tax revenue by approximately $33 billion. B decreasing government tax revenue by $100 billion. increasing government tax revenue by $100 billion. decreasing government tax revenue by $750 billion. decreasing government tax revenue by approximately $33 billion.
2. The graph below shows the AD-AS model in short-run equilibrium at price level Po and level of real GDP at Yo. Label the following: AD, SRAS, LRAS, Po and Yo. P Y A. Is this SR equilibrium a recessionary gap or an inflationary gap? Why is the undesirable? B. Assume Congress and the President decide to act. How would you suggest they alter each of the following (1,↓↓, or no change)? - Taxes - Transfer Payments -Government Spending C. Show the effects of these changes in the space above. Assume this intervention brings the economy back to potential GDP. D. As the economy moves from Yo to Yp, what happens to the following (1,↓, or no change)? - Real GDP - the unemployment rate - The price level - the rate of inflation
Price level (P) LRAS SRAS2 SRAS, В A AD2 AD, Real GDP (7) Based on the graph, a decrease in Point D to Point A could cause the economy to move from government spending exports on apples restrictions from the Environmental Protection Agency on car production in the U.S. inflation the demand for consumer goods Question 8 Suppose housing values fell during the recession of 2008. Therefore, O the price level will fall as the aggregate demand curve shifts to the left.
P₁ P3 P₂ P₁ Po T ADO I AD₁ AD₂ LRAS 1 1 I I O Decreased; decreased. Increased; decreased. O Decreased, increased. 1 1 T N Q₁ 1 W 1 S SRAS Q₂ Q3 Real Domestic Output, GDP Refer to the above diagram. Assume aggregate demand increased from ADo to AD₂. and the price level As a result of the shift, actual GDP